Ringgit expected to trend downwards on lack of catalysts next week

Ringgit expected to trend downwards on lack of catalysts next week
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KUALA LUMPUR (May 14): The ringgit is expected to trend downwards against the US dollar next week on lack of catalysts, according to an analyst.

He said there were multiple factors that seemed to negatively affect the economic recovery momentum.

Meanwhile, Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said despite the rise in the overnight policy rate and better-than-expected gross domestic product performance for the first quarter of 2022 (1Q22), the US dollar-ringgit pair continued to linger on the weaker side.

"Clearly, market participants were engrossed with the US Federal Reserve’s possible move to tighten their grip on monetary policy.

"Global equities have severely tanked, while the 10-year US Treasury yields were below the 3% level as investors were seeking refuge against volatility," he told Bernama.

He said that at present, the ringgit’s resistance level against the US dollar is located at 4.447, while the support level is at 4.340.

"Technical indicators indicate that the US dollar/ringgit [pair] is in the oversold region, suggesting that a possible correction could happen.

"However, concern over aggressive monetary tightening in the US will dominate market sentiment next week," he added.

On Friday (May 13), Bank Negara Malaysia announced that the economy rebounded in 1Q22 with a 5% growth versus a contraction of 0.5% in the same quarter last year, buoyed by improving domestic demand as economic activities continued to normalise with the easing of containment measures.

Its governor Tan Sri Nor Shamsiah Mohd Yunus said the domestic economy is expected to improve further this year, with growth projected to be between 5.3% and 6.3% in 2022, supported by stronger domestic demand, continued expansion in external demand and further improvement in the labour market.

Pegging the ringgit would not be in the best interest of Malaysia as that would have substantial risks, she noted, adding that maintaining a peg would be a very costly policy as it took up a sizeable amount of reserves, especially in the last decade, and would ultimately weaken the country’s external resilience. 

“A peg would have detrimental effects on investors’ sentiment, affecting not only foreign direct investment into Malaysia but also leading to capital outflows from the country," she said.

Nor Shamsiah said the volatility index had also gone up constantly, which resulted in a stronger US dollar, while currencies in other countries were seen to depreciate against the greenback.

“Movement in the ringgit was in line with other regional countries, and again I would like to stress that having a flexible exchange rate is most appropriate given the current circumstances,” she added.

On a weekly basis, the ringgit was lower against the greenback at 4.3980/3995 on Friday, compared with 4.3650/3680 a week earlier.

The local note, however, was traded mostly higher against a basket of major currencies on a Friday-to-Friday basis. 

The ringgit appreciated against the Singapore dollar to 3.1482/1497 from 3.1523/1549 a week earlier, improved versus the British pound to 5.3568/3586 from 5.3868/3905 last week, and rose against the euro to 4.5625/5640 from 4.6138/6170.

It, however, declined vis-a-vis the Japanese yen to 3.4127/4142 from 3.3453/3479 previously.